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American Opportunity Tax Credit Details

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CNNMoney has broken down the details of the latest stimulus package and has the following to say about the American Opportunity Tax Credit, which was a refundable credit pushed heavily by Pennsylvania Representative Chaka Fattah (D):

New temporary college credit: The bill introduces the American Opportunity Tax Credit, which would be in effect for 2009 and 2010. It expands the existing Hope Scholarship tax credit and would be worth as much as $2,500 for higher education expenses, up from $1,800 currently.

The full credit would be available to those making less than $80,000 ($160,000 for joint filers). Those making between those amounts and $90,000 ($180,000 for joint filers) would get a partial credit. And the break would also be partially refundable, meaning lower income families with little or no tax liability could now claim some of the credit. Estimated cost: $13.9 billion.

The stimulus package also has another education related tax break, the Pell Grant has been increased to $5,350 for 2009 and $5,550 for 2010; an increase of $500 in both cases.

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190 Responses to “American Opportunity Tax Credit Details”

  1. bethany says:

    I have a question…I took classes in 2009 but only 3 credits per semester but I am taking half time credits for spring 2010.. The tuition for spring 2010 is included on my 1098 that i must file with my 2009 taxes. Can I claim the American Opportunity credit..Im not sure . Thanks for the help

  2. chris says:

    @ Lisa:

    This question has been asked in a few different ways, but not directly from what I can see. I graduated in May 2009 as a 5th year senior and I was 22 (now 23); two years at community college and three at the university. Everywhere it states “any of the first 4 years of college”. I immediately interpret this as a NO GO, as I am obviously out of the 4th year eligibility. However, I wanted to make sure that there are not other interpretations of this requirement that I am not aware of.

    Thank you!

  3. Lisa says:

    Hi Chris, I agree, I think it is a NO GO. But to be absolutely sure you could call the IRS hotline. Sometimes they help folks with the correct answer! (insert smiley face here).

    I’ve called them before as just a tax payer (not a preparer) and gotten good help, nice people. Yes, there was a wait, but the sooner you call before April 15th, the better!

    Telephone Assistance for Individuals:
    Toll-Free, 1-800-829-1040
    Hours of Operation: Monday – Friday, 7:00 a.m. – 10:00 p.m. your local time (Alaska & Hawaii follow Pacific Time)

    Worst case you might be able to take the Lifetime Learning Credit or the Tuition and Education fee deduction.

    • Alex says:

      The real answer to all your questions is that the first four years of secondary higher education is based on terms of credits not actual time. Generally speaking 30 hours is one complete year, hence 120 hours is 4 years. If you have any more than that then it might be a no go, depending on the agent you talk to at the IRS.

      • Anonymous says:

        What is a No go

        • Justin Paschal says:

          What they are referring to when they say first four years of college is that you are going for your bachelors degree. If you are going for your bachelors degree and you have not earned enough credit for that bachelors degree in the year you plan on taking the american opportunity credit, you can take the credit, just as long as you were 24 at the end of that tax year and provide more than half of your own support.

  4. Pru says:

    Would I be eligible to claim the American Opportunity Tax Credit if my parents claim me as a dependent?

    I live at home, but I have been paying my way for the entirety of my college expenses thus far.

    Even if my parents are claiming me since I do live at home, would I be able to claim the credit since I have been paying for my schooling?

  5. lifeaholic says:

    woops wrong forum. uh yeah I just tried applying for the American Opportunity Tax credit and turns out I don’t qualify cause my parents claim me as a dependent. Ah phooie

  6. Leone Williams says:

    Can anyone tell me why H&R block is telling me I can’t take the American Opportunity Credit because I became a graduate student at the end of the year? I went to undergrad school in 2009 for the first nine months and went straight to grad school and they are telling me I can’t take the American Opportunity because I am in graduate school now? That makes absolutely no sense to me what so ever! They say I can take the Lifetime Learning but not Opportunity credit. Why? Anyone please!

    • steve S. says:

      first how did you get your degree (bachelors right in 9 months?) you get a letter ruling from the IRS if you like.

    • Sheila says:

      I actually have a similar question. I graduated with my undergraduate in May 2009 and started grad school in August 2009. I read somewhere that your status depends on what it would be at the beginning of the year…In this case I would be an undergrad at the beginning of the year and would be eligibile for the credit. Is this correct?

    • Sandy says:

      My son is now in graduate school and is able to go back as far as 2007 and do an amendment on his taxes and get the tax credit you are talking about. He is getting back $1400 for just one year alone.

    • Matthew says:

      Take the American Opportunity Tax Credit for your expenses while an undergraduate student. It is available to ONLY undergrad. students. If H&R Block won’t let you take it, go find a real accountant. This is the same group of people that tried to tell a friend of mine that he could deduct his commuting mileage to and from work. As far as how to handle the graduate level expenses, I haven’t a clue. Those qualify for the Lifetime Learning credit, but you’ll probably find difficulty claiming both credits, even if you segment the expenses between both credits. Again, find a good accountant. By the time you pay H&R by the form, you won’t end up spending much more on a full-service firm, but you’ll likely save far more in taxes. What’s more, opposed to getting someone who may not have taken his first college class, only H&R’s “tax class,” spending a half hour preparing your return and spitting it out for you with little or no superior review, in many small firms you’ll get the tax consultation of a partner who’s been in the business for over thirty years, a seasoned tax preparer (college graduate) preparing your return…followed by review by that same preparer as well as the partner you initially consulted with!!! As for H&R’s claim that they find errors in 75% of returns, these “errors” are generally alternative ways of reporting the same data. Give me a return. I can show you multiple ways to enter numerous pieces of information. I doubt that the H&R rookie who could have just finished high school, or the middle aged man who just go laid of from his warehouse job and needed a temporary source of income, is out there phenomenally exposing the fallacies of reputable, educated tax veterans; but his company may have taught him a trick or two about how to be very convincing in distorting an alternative method of reporting an item as an “error.” I’m done rambling now.

      • tax pro says:

        Not to defend H&R, they do make a lot of false claims and errors, but most of the errors I find come from CPA firms. I have 25 years of experience, spend 100+ hours every year teaching tax school plus 60+ hours annually in tax trainings. I am a tax professional who owns my own business. What I’d like for you to realize is the “commuting miles” question should be asked by EVERY tax pro who is taking any mileage deduction on a 2106. This is not an error from a tax preparer, but an error from an uninformed taxpayer. I can guarantee you H&R did not use the commuting miles as a deduction, rather as an important piece of information necessary to validate the actual dedutible miles taken on his tax return. The unfortunate thing is, as you said, the H&R person is a “data entry” tax preparer. They many not have even realized why they were asking the question because their software prompted them to do so. They either didn’t tell the client why they were asking the question, or the client just didn’t understand. I can promise you, if you want an excellent job on a personal tax return, small business, rental, etc., unless you just get very lucky, you do NOT want a CPA to do the tax return. Unless they choose to learn, they simply do not know how. I have 30 trained professional working for me in 3 different towns. I won’t hire people with much accounting training, because they are simply “messed up” for tax prep. It is two completely different occupations and specialties. Best kept secret – the CPA’s have done a nice job marketing themselves. I wish the IRS would require them to take the new mandatory certification tests, the tax professions would be so busy taking care of their clients, because the average CPA’s don’t know how to do a 1040 tax return. They should stick with the corporations.
        That’s my soapbox. :)

        • Stacie says:

          I highly agree. I got a degree in accounting because I was under the impression I needed one. A CPA certification is only truly needed if someone is going to be an auditor. It is better to have someone whose sole specialty is taxes. Much like yours and my small businesses. This is what we do. And we do it cheaper than 90% of the CPA’s out there!

  7. Kate says:

    If I don’t qualify for the Refundable American Opportunity credit can I take the nonrefundable education credit? And would that credit be at the full $2500? Or do I have to take the Lifetime learning credit instead?

    Thanks

  8. Adam says:

    Ok…. so I am filing my taxes myself with H&R Block. It says I am eligible for this American Oppurtunity Credit thing but I don’t understand what it is or how I am eligible? I’m 21 and I CAN be claimed as a dependant…but I wasn’t. My parents DID NOT claim me. I had 11000 in qualified tuition on my 1098-T. I also provide all my own income from my part time job and student loans.

    • Duong says:

      The American Opportunity credit allows you to claim up to $4000 for education expense if you are in the first four years of your college. You will receive up to $1500 nonrefundable credit to reduce your tax liability( this credit is no use if you don’t have to pay any tax)and up to $1000 refundable credit (even though you do not owe at tax) .
      In your case,since your parents didn’t claim you as their dependent, you are allowed to receive this credit. You will receive a refund of $1000 plus any taxes liability that you owed (up to $1500). If your income is high enough ( but not more than $90000 for single and $180,000 for married filling joint), you may receive a full credit of $2500.
      Hope this will help

      • I agree. You can’t be claimed as a dependent since more than 50% of your support came from YOU, not from your parents. And student loans count as your income, if they are in your name.

        The dependent rule is “Relationship, Age, Residency and Support.” You aren’t being supported by your parents, so you aren’t their dependent. You might be the son, you might be living with them, you might be under 24, but you aren’t being supported by them.

        • JR says:

          hey, i have a similar question and i believe you will be able to answer it for me=), well ok. so i live w/my parents and going to college. i apply student loan and its all under my name, i am under 24 yrs of age and my father claimed me, will i still be able to claim myself for the tuition 1098-t form i recieve? please respond to me by mt email=) thank you

  9. Will says:

    I attempted to claim the Amer. Opp. tax credit on my income tax return and they told me I could not because I had not claimed myself as a dependent. They automatically corrected this for me.

    We sent in my parent’s return that claimed me along with claiming the credit on my parent’s tax return.

    The IRS rejected it and said that I had already claimed it, which as I mentioned above, I never got. What should I do???

    Thanks,
    Will

  10. Kountrie829 says:

    I recieved a pell grant am I still eligible for this $1000 refundable credit?

  11. bree says:

    i went to a tech school for six months (just finished) am i eligible for the american opp tax credit?

  12. Anonymous says:

    do i qualify for the american credit if i received a pell grant to pay for my schooling?

    • Anonymous says:

      You received a pell grant and now you want more? When does it end?

      • Michelle says:

        After college presumably the students income will jump and the bracket will increase. The student will then pay much more in taxes than the cost of the pell grant and the tax break combined, paving the way for the next group of students.

        If you treat students like these breaks are such impositions, imagine how much more imposing it would be to have large groups of unemployable high school grads following 12 years of expensive former education…

        It’s not as if college students are greedy ne’er do wells snarling after a handout; let’s not act like it’s the same. When my son heads off to college in a couple of years, I’d hate to have him distracted from tests trying to figure out how to come up with money to pay uncle sam.

      • Nigel says:

        What u care? As a taxpayer, i suppose?

    • Sandy says:

      Yes, if you received a pell grant you can get it.

      • akkaren says:

        No you cannot receive the credit if you paid for your tuition by pell grant.

      • melissa says:

        No, what happens is on the 1098T they list how much the total expenses were, then they list how much grant money was given…then they subtract it and show a bottom line…that bottom line is what you are allowed to claim as “out of pocket”..that can come from loans or mom or dad or whatever, but the fed money cant be given to you twice..lol

  13. tng says:

    if i graduated in may of 2010 with my associates degree would i again this year get any hope credit as i did last year?

  14. David says:

    I received the American opportunity credit for 2009 am I untitled to claim it on 1010 Taxes if I was a student all year

  15. Justin says:

    I have a quick question, I have a hard time understanding this tax stuff but I graduated in December of 2009 with a Certificate and I am not being claimed by anyone and all my schooling was paid for by loans in which I am currently paying on right now and I did not earn anywhere near the 80,00 last year, however I just found out about this credit. Am I eligible and if so am I too late to claim it? Any help would be great!

  16. Inna says:

    I’m new to taxes, this is the first year I have to file them, and my question is about my husband and American Opportunity Credit. He started going to a community college exactly 5 years ago (spring semester) but he took 3 semesters off and last year he was only going part-time. Another reason he is still going to a community college is a change of major. His mother claimed Hope credit in 2007 and 2008. So my question is: when the instruction says “4 years of postsecondary education”, does it mean 4 years after high school regardless if you finish your bachelors within this time frame or not? Basically, I want to know if we can use Ameican opportunity credit for my husband for 2010…

    Thanks for responses in advance!

    • Gina says:

      Hey Inna :) . From reading the IRS publication it seems like it’s only counting years in college form. So if he’s got 60 hours or more, he’s finished 2 years. 30 more hours puts him in his 3rd year, and 120 hours completed means he’s done 4 years of college. If you call his college, they can likely tell you what year they consider him to be in.

  17. Wade says:

    According to all that I have read expenses paid using a loan qualify you for the credit. A portion of my expenses were also paid with a pell grant and I was tolled that disqualifies me. However I still paid well over $4,000 using loans, so do I qualify?

    • Annonymous says:

      I came across this. If your financial aid was more than your tuition, books, and fee’s, you wont get the tax credit, and the difference is counted as income. The tax credit benefits those who don’t qualify for financial aid. Obama’s idea really is not that useful. I’d rather get financial aid then wait until the end of the year to get a tax credit that will pay back a portion of my student loan.

      Looks to me like it goes like this:

      1098-T
      Tuition, Books, and Fees $X.XX
      - Less Financial Aid $X.XX
      = Subtotal $X.XX

      - Less Student Loan (Expenses Paid) $X.XX
      = Tax Credit $X.XX

    • akkaren says:

      Yes you can claim the credit for out of pocket expenses that your grant did not cover. You cannot claim what was paid by your grant.

  18. Anonymous says:

    I went to school 4 credit per quarter in 2010. Can I claim the american oppertunity tax credit?

  19. Janey says:

    Hi, my exhusband has always claimed our son on his taxes. Our son is 19 and has the 1098-T form. Can I claim this child and get the 1098-T credit or does my ex need to continue claiming him? I am the one who has taken out all the loans, etc. Just curious. Thank you so much for your time and help!

  20. Jenny says:

    I got my Bachelor degree a long time ago but in 2010 I was in the first year of a different bachelor degree program. Can I claim the American Opportunity Credit?

    • Anelle says:

      Sorry Jenny, the credit can only be claimed if you’re working on your first bachelor’s degree. Please see this publication directly from the IRS. Although the publication relates to wanting to claim the credit for your 09′ taxes, it also applies for 10′ taxes since the credit is available for both 09′ and 10′. Also, I believe it will not be extended through 2012 but I think that’s still in the works.

      http://www.irs.gov/publications/p970/ch02.html

  21. Cam says:

    Hi, I finished my BA in December 2009 (Recieved my diploma in January 2010) but graduated High School in 2007. I started Grad school in August 2010. Turbotax seems to be telling me that I would have an additional 1500 refund if I graduated one semester later. Is there any way for me to get this credit since I only am 2 years out of highschool? Or am I out of luck because I decided to graduate quicker?

    • Anelle says:

      You were eligible to receive the credit for your 2009 return, because the credit is for years 09′ & 10′, and because you were a senior obtaining a first bachelor’s in 2009. You cannot claim the credit for 2010 because the credit does not count towards grad school.

      You can still obtain the benefit of the credit for your 2009 tax return by amending your 2009 tax return. However, I suggest you go to good tax preparer or an accountant in case you don’t feel confident about doing it yourself. You need to file a 1040X

      http://www.irs.gov/pub/irs-pdf/i1040x.pdf

  22. EMC says:

    I was enrolled January 2010 as a full time student but then had to withdraw. I know I can claim my tuition and fees for 2010, but since I’m not currently enrolled I’m not allowed to use the American Opportunity Credit right?

    • Anelle says:

      You had to be enrolled at least half time for an entire academic period, meaning at least one full semester in 2010 to qualify. If you withdrew, you’re not eligible.

  23. marilyn says:

    Hello,

    I just filed my taxes and got approved for the Am. credit deduction,my question is, if I file for the FAFSA will I still get financial aid or does that tax deduction take over. So can I have both is really my concern.
    Thank you much,
    Marilyn

    • Anelle says:

      Claiming the American Opp. Credit does not affect your Fafsa or financial aid eligibility. The only way these tho would interfere with each other is if lets say you did not pay your 2010 college tuition/related expenses out of pocket or with student loans.

      If they were paid with a federal pell grant, state, or college grant, or any “free” money, than you did not qualify for the credit and were not supposed to claim it. If you did by mistake and get audited all that will happen is that you adjust your taxes and pay the IRS (NOT the Dept. of Education -Fafsa people) back for the tax break you got by using the credit.

      Even then, you’re still going to get financial aid from the department of education.

      • Anelle says:

        *** However, if say your tuition expenses were greater than any scholarship/grant money received, you can claim the credit but must reduce the tuition expense total by any grants/scholarships amounts received.

      • another question says:

        Hi Anelle, you seem to be familiar with this credit… What should I do if I received a grant but also took out loans? Does the grant cancel out the loans?

        • Anelle says:

          Receiving a grant does not cancel out the loans. You can still claim the credit if you paid tuition with the proceeds from a loan.

          What you need to ask yourself is how much did I pay in for tuition. How much does it say on my 1098T? (the form your school sends you as proof of what you paid).

          Now follow my example. Say your tuition expenses were $5,000, you received 2,000 in grants, and you took out a $7,000 loan. Here is your calculation:

          • Anelle says:

            Oops, this thing cut me off. Do this calculation:

            Tuition Expense $5,000
            Less Grants $3,000
            = Tuition expense not covered by grant $2,000

            You can claim $2,000 in tuition expenses even if this amount was paid with a loan. But remember, only use the amount of the loan that was paid for tuition expense. You cannot claim the excess loan amount because well this may have been for food, rent, etc. and does not qualify as tuition expense.

            I know this is boring, but please read publication on the link I posted to you if you have any doubts. I hoped this helped.

  24. mindie says:

    I’m having a hard time with this and even reading through most of these answer it still doesn’t clarify it much on my part..

    So I recently got my 1098-T from college, full time student in my second year and I’m 21 not working, will did work but quit. I’m not taking student loans. I live with my parents but they don’t do taxes. Am i still qualified to file for tax credit or not? Please help if you can!

    • Anelle says:

      If you’re not claimed as a dependent, meaning if you’re parents do not claim you as their dependent (well because as you mentioned, they don’t do taxes) then you should be eligible. However, to be eligible you must either have paid your tuition yourself out of pocket or with student loans. You cannot claim the credit if you received any kind of grant/scholarship that paid for you. Read more about it straight from the powers at be: the IRS. This is the 2009 publication but since the credit is for tax years 09′ and 10′ the same rules apply. http://www.irs.gov/publications/p970/ch02.html

      • Anelle says:

        *** However, if say your tuition expenses were greater than any scholarship/grant money received, you can claim the credit but must reduce the tuition expense total by any grants/scholarships amounts received….

  25. John says:

    Am I only able to take the American Opportunity Credit, the Lifetime Learning Credit, or the Tuition deduction to the extent of any scholarship money I did not get. i.e. if the amount on the 1098T in box 2 for “Amounts billed for qualified tuition and related expenses” says $1000 but box 5, “Scholarships or grants” says $1,010 I would assume that because the scholarships and grants > tuition I cannot take the credit? In addition, I’d have to claim the extra $10 as ordinary income. Can someone please confirm. Thanks….

    • Anelle says:

      Correct. If your tuition would have been say, 10k and you only received 2k in scholarship and grants, and the remaining 8k would have been paid by you or student loans then you would simply reduce your tuition expenses by the scholarship money and still claim the credit.

      See: http://www.irs.gov/publications/p970/ch02.html

      Read where it says:
      *No Double Benefit Allowed

      You cannot do any of the following.

      Claim a credit based on qualified education expenses paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. See Adjustments to Qualified Education Expenses, next.

      Adjustments to Qualified Education Expenses

      If you pay qualified education expenses with certain tax-free funds, you cannot claim a credit for those amounts. You must reduce the qualified education expenses by the amount of any tax-free educational assistance and refund(s) you received.

      • Anelle says:

        P.S. Scholarship or grants are not taxable. So if you have an excess of $10 is not ordinary income. So breathe, you’re o.k. and I wouldn’t worry about $10 =)


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